Out of Control Policy Blog

Lottery Privatization Still on the Table in Indiana

Despite a legislative setback last session, Indiana Gov. Mitch Daniels continues to keep his lottery privatization proposal alive. Gov. Daniels offered details this morning on his proposal to fund a new college tuition program by monetizing future Hoosier Lottery revenues, either through a long-term lease to a private sector investor-operator or by bonding against future revenue growth. According to the Fort Wayne Journal Gazette :

The Hoosier College Promise program would be available to Indiana students from families who earn about $60,000 or less annually. They would receive two years of free tuition at Ivy Tech Community College or an equivalent amount of $6,000 to use for their first two years at another college or university in the state.

"With the Hoosier College Promise, we can redeem the lost promise of the Hoosier Lottery," Daniels said. "When it was created, Hoosiers were told it would be dedicated to education. It's time to finally do just that, by putting part of our lottery proceeds in trust for college aid."

One of Daniels' ideas is to bond on any growth in revenues. But annual profits have remained somewhat steady in recent years – ranging from a high of $218 million in 2006 to a low of $155 million in 2001. The money is currently dedicated to support pension obligations and reduce auto excise taxes.

Or the governor wants to allow a private operator to run the lottery for 30 years in exchange for at least $1 billion up front. That idea failed in 2007.

Also, see this recent Indianapolis Star op-ed by the sponsor of last session's lottery privatization bill, State Senator James W. Merritt Jr, defending the concept.

Reason's Annual Privatization Report 2008 details the latest developments in the emerging arena of state lottery privatization. In 2008, over a dozen states saw proposals to close budget gaps and increase state revenues through long-term lease agreements, or concessions, for state lottery systems. While the idea of private investor/operators offering large upfront lumps of cash for lottery concessions has certainly generated tremendous interest among state elected officials, thus far no state has sealed the deal.

Under the various proposals, private companies would compete for the rights to operate a lottery on behalf of the state through a long-term (30+ year) concession, while the state would continue to own the lottery and retain a strong regulatory role. In some states this means maintaining strict controls over the types of new game products, how games are marketed and minimum prize payout ratios. The lottery concession proposals discussed thus far– and implemented globally in Australia, the United Kingdom and elsewhere–have been conceptually similar to the types of long-term leases seen in other realms of public infrastructure, such as toll roads, seaports and airports.

For more on recent lottery privatization developments by state, see the "Emerging Issues" section of the Annual Privatization Report. Also see my January 2008 op-ed discussing the potential benefits of lottery privatization in Virginia.

Leonard Gilroy is Director of Government Reform


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